Week 4

Week 4. SE3

Computing Cash Flows from Operating Activities: Indirect Method

During 2014, Cupello Corporation has a net income of $144,000. Included on its income statement were depreciation expense of $16,000 and amortization expense of $1,800. During the year, Accounts Receivable decreased by $8,200, Inventories increased by $5,400, Prepaid Expenses decreased by $1,000, Accounts Payable decreased by $14,000 and Accrued Liabilities decreased by $1,700. Use the indirect method to determine net cash flows from operating activities.


Cash Flows from investing activities and noncash transaction

During 2014, Fargo Company purchased land for $375,000. It paid $125,000 in cash and signed a $250,000 mortgage for the rest. The company also sold for $95,000 cash a building that originally cost $90,000 on which it had $70,000 of accumulated depreciation, making a gain of $75,000. Prepare the cash flows investing activities section and the schedule of noncash investing and financing transactions of the statement of cash flows.


During 2014, North Dakota Company issued $1,000,000 in long term bonds at 96, repaid $150,000 of bonds at face value, paid interest of $80,000, and paid dividends of $50,000. Prepare the cash flows from the financing activities section of the statement of cash flows.


Cash Generating Efficiency Ratios and Free Cash Flow

In 2014, Melvin Corporation had year-end assets of $1,100,000 sales of $1,580,000, net income of $180,000 net cash flows from operating activities of $360,000, purchases of plant assets of $240,000 and sales of plant assets of $40,000, and it paid dividends of $80,000. In 2014, year-end assets were $1,000,000. Calculate the cash-generating efficiency ratios of cash flow yield, cash flows to sales, and cash flows to assets. Also calculate free cash flow.


Horizontal Analysis

Vision, Inc.’s comparative income statements follow. Compute the amount and percentage changes for the income for the income statements, and comment on the changes from 2013 to 2014

Net Sales                 2014        $360,000          2013       $290,000

Cost of goods sold                       224,000                      176,000

Gross margin                             $136,000                    $114,000

Operating expenses                    80,000                        60,000

Operating income                     $56,000                      $54,000

Interest expense                       14,000                           16,000

Income before income taxes   $42,000                         $44,000

Income taxes expense                14,000                         16,000

Net income                                  $28,000                            $28,000

Earnings per share                      $2.80                               $2.80


Vertical Analysis

Vision Inc. comparative balance sheets follow Prepare common size statements and comment on the changes from 2013 to 2014

Current assets            Assets                   2014                          $48,000         2013      $40,000

Property, plant, and equipment (net)                                     260,000                       200,000

Total assets                                                                                  $308,000                    $240,000

Current liabilities                                     2014                             $36,000        2013     $44,000

Long term liabilities                                                                     180,000                      120,000

Stockholder’s equity                                                                    92,000                        76,000

Total liabilities and stockholder’s equity                                   $308,000                    $240,000


Using the informative for Vision Inc in the SE4 and SE5, compute the current ratio, receivables turnover, days’ sales uncollected, inventory turnover days inventory on hand, payables turnover days payable, and financing period for 2013 and 2014. Inventories were $8,000 in 2012, $10,000 in 2013 and $14,000 in 2014. Accounts receivable were $12,000 in 2012, $16,000 in 2013, and $20,000 in 2014. Accounts payable were $18,000 in 2012, $20,000 in 2013 and $24,000 in 2014. The company has no marketable securities or prepaid assets. Comment on the results.

Week 4


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